Why do you work? Is it for a paycheck? Or do you work for something more?
Incentive programs abound in distribution centers. Many food service distributors use piece rate to pay their order pickers, cents per case or cents per pound. The incentive: pull more cases. Many retail distribution centers use individual incentive programs. Some use group incentives.
Pay for performance is a big deal in the US. We hear about how well-compensated the titans of Wall Street and the CEOs of major corporations are. They get paid for performance, right? Well, they do get paid, but their performance is somewhat lacking.
There is quite a bit of research showing that the higher the level of cognitive skill needed to do a job, the less successfully a pay-for-performance program works.
In the MIT study that Daniel Pink talks about in his RSA (Royal Society for the Encouragement of Arts, Manufactures and Commerce) presentation (see the video below), monetary incentives work as long as the work is purely mechanical, and does not involve high cognitive thinking. Order selection in a distribution center fits this model well—except for thinking about how to pick more stuff, an order picker’s job is very mechanical. Go to the location, pick the product, put it in the cart, scan a barcode, check a paper, go to the next location.
How about the more complex jobs, like truck loading, replenishment, or stocking? Depending on the nature of the operation, these positions may not require much more thought. Driving a lift truck perhaps requires more skill, but it is still a fairly mechanical job. It is therefore no surprise that incentive-pay-for-performance programs work well in these positions too.
How about the receiving dock? It depends on the commodity and handling, but incentive programs seem to be less of a motivation to receiving operations. Sure, there is the mechanical process of unloading the truck and palletizing the freight, but there is much more to the total receiving process. More thinking and greater cognitive skills are required to understand the paperwork, count the product, and identify potential problems.
Some high-volume facilities divide the labor, either with dedicated unloaders on the payroll or by using lumpers or contract unloading services. Unloading is mechanical, and easy to incentivize with pay.
The checking function is a different story. The receiving checker in many facilities is higher in the mental food chain. The checker has to understand the product, the markings, and the systems, and he has to know how to detect problems. The checker’s job is one of the more complex hourly jobs in the distribution center. Rarely does a traditional unit per hour incentive pay program work for checkers.
Inventory control clerks, receiving clerks, billing clerks—almost none of these positions get incentive pay based on units per hour. You may see incentives based on accuracy, but not throughput. As Dan Pink explains in the video, people working in these positions are much less likely to be motivated to do more work for more pay. They may be more careful, but they will not produce more work for more pay.
Safety programs fall into this same area. If being safe means not getting cut with a box knife or not colliding people or equipment with the lift truck, then perhaps a pay-for-no-lost-time-accidents program will work. What if the challenge to be safe is not so mechanical, but is more thought-intensive? If we follow the MIT model, performance pay may not carry the motivation.
So how do you really motivate the people doing higher process work? Take the issue of money off the table. Pay them enough that they do not think about money at work. Pay them enough that they worry about the quality of the job they do and not about the money they have to make.
I can speak to this from lots of experience. In the first DC I managed, we had order pickers who worked for less per hour than our receivers and loaders. The difference in pay was substantial; the receivers and loaders earned at least 40% more than the pickers—and they earned every penny of that extra pay. These people caught the errors of others, and they managed problems. They ensured the product we shipped to the customers got loaded undamaged using every cubic foot of space in the truck. The extra pay was significantly offset by the costs these people trimmed from our expenses, and by the inventory accuracy of our operation.
Taking it one step further, I know a corporate logistics director who worked to take $3 million of expense out of the budget every year. For a few years he received no bonus, even though he consistently pulled out that $3 million. The third year he got a bonus plan—and pulled out the same $3 million. Then a stretch goal was put in place; if he pulled $4 million in costs he would earn a 50% increase in the bonus. It did not work. He still hit the $3 million reduction, and earned a bonus for something he would have done anyway.
Think about this as you ponder how much money motivates the people who work for you. Watch the video presentation below, and then look at how your employer motivates you.
Are you motivated?
A tip ‘o the hat to the Royal Society for the encouragement of Arts, Manufactures and Commerce for sponsoring the event, the folks at Cognitive Media for the powerful video, and to Daniel Pink for the presentation itself.